Boeing, Airbus Rivalry – Lessons in Strategic Planning

 

Updated June 30, 2010

A major ruling against Airbus by the World Trade Organization (WTO) adds new intrigue to the Boeing-Airbus competition.  The WTO ruled that Airbus has received illegal subsidies for four decades. Litigation has been ongoing for six years.

But Airbus vows to fight the ruling as it tries to land even more government funding from the European Union for its new A350 jet, which will compete against Boeing’s 777 and 787. Airbus also predicts Boeing will receive a similar adverse ruling from the WTO this summer.

So the plot in the rivalry continues to thicken. Businesses can learn valuable lessons from the Boeing-Airbus competition. In terms of strategic planning, it has been quite a roller-coaster ride with no end in sight.

Have both sides done enough strategic homework? Should major manufacturers rely on government funding?

Here’s some more history to consider:

In July, 2006, I recall writing a column suggesting that Boeing should not break out the champagne to celebrate even though Airbus was faltering. My sense was that investors would have been impressed if Boeing employees continued to act with poise and assurance – as though they expected to win sales orders – unlike many of the flamboyant Airbus stakeholders. Their behavior was reminiscent of immature athletes taunting opponents on a football field.

Airbus sales had dropped by more than 50 percent during the first six months of 2006 compared to 2007. The company was behind schedule in landing more than 250 sales, which were needed to capitalize on its $13 billion design and production investment.

Airbus was reeling from a buyers’ strike for several reasons:

• Delivery delays in the A-380, a super jumbo jet
• A class-action lawsuit and the threat of more litigation accusing management of hiding problems
• Astronomical fuel costs
• In-fighting by French and German executives at the parent company, EADS
• A management shakeup at Airbus

All these developments occurred before the deadly Airbus A-310 accident in Russia that killed the crew and scores of passengers. Yes, Airbus appeared rather vulnerable.

Since the 2006 column, the cost of jet fuel and the worldwide recession took a toll on air travel and cargo services, which adversely affected both airline manufacturers.

For example, Dubai-based Emirates airline stopped its using its Airbus 380s on flights to New York and replaced them with the smaller Boeing 777.

Meanwhile, Boeing lost its sales throne in suffering from fewer orders while still pinning its hopes on its new 787. But the Dreamliner’s production has been postponed five times. The first delivery is now forecast for Q4 in 2010 – at best, a two-year delay for the aircraft. In other words, it is the most-expensive and delayed aircraft in Boeing’s rich history.

Other Boeing challenges:

• The estimated $35 billion Air Force tanker-bid process after initially losing to Airbus
• Allegations of illegal subsidies on both sides before the World Trade Organization
• Whether to locate a second 787 assembly line outside of Washington state
• Progress of the 747-8 jumbo jet
• Production cuts because airlines are postponing jet deliveries, cutting back on new purchases and canceling orders

On the other hand, Boeing originally strategized that its highly efficient 787 Dreamliner would prove to be popular with airlines. Airbus apparently didn’t factor whether airports worldwide would want to construct longer runways for landings and takeoffs to accommodate its huge A-380. Not to mention the increasing costs for jet fuel.

Add to the competitive mix – Aviation Industry Corp. of China (AVIC) – a competitor for Airbus and Boeing. AVIC is restructuring again as a single company. It will be listed on the Hong Kong stock exchange with about $22 billion in assets. As China’s largest aircraft manufacturer, it also has one-fifth of Comac, Commercial Aircraft Corp. of China. In 2016, Comac plans a 150-seat jet for the marketplace.

So, it would be intriguing to peek at the strategic plans of Boeing and Airbus to see if they did a thorough forecast of all these developments. The positive and negative events illustrate how important it is to thoroughly explore all contingencies. That includes funding. The controversy over government funding has unnecessarily cost both sides valuable resources.

And how can a smaller business capitalize on the Boeing-Airbus case study, and maximize performance with strategic planning?

Strategic planning starts with a SWOT analysis: Analyzing your internal strengths, weaknesses along with your external opportunities and threats.

The basic categories to be evaluated in your internal operation should include:

1. Management
2. Product/Services
3. Customer Service
4. Human Resources (including likelihood of employee strikes)
5. Marketing
6. Operations
7. Technology
8. Security
9. Financial
10. Viewpoints of your customers

Externally, you’ll want to assess these factors:

Socio-cultural – including demographic movements, the aging baby-boomer demographic, consumer tastes, population shifts, and the trend toward healthy lifestyles.

Economic developments – consider interest rates, inflation, fluctuations in currencies, and stock market trends.

Technology – including information technology, privacy concerns, production and the Internet.

Politics – issues such as federal, state and local levels in both taxes and regulatory issues.

Industry competition – obviously, you’ll need to develop a strong awareness about your competitors.

Customer profiles – analyze your target customers’ changing characteristics, wants, and needs. Determine what you want to target in average age, income, gender, and marital status. Evaluate their buying preferences and how they feel about your industry.

Once the SWOT analysis has been completed, you can develop and implement your strategic plan.

However, many small business owners and managers fail to properly budget time for strategic planning and they fail to capitalize on the expertise of their employees. After all, employees deal with customers every day.

Involving your employees will improve their character and morale. It will also promote teamwork, which will motivate employees to higher performance. So don’t overlook their experiences and instincts, and be sure to obtain their support.

In fact, every stakeholder – from employees to customers – should be part of the comment process to help develop and implement your action plan. Identify the leaders and best thinkers in your company to help you. It will enable you to plan using your vision with goals for entering new markets and introducing new services or products, and to obtain efficiencies by developing strategies for quality.

Consider other “dos and don’ts” of strategic planning.

Dos:

• Assign a strong personality to administer the process
• Develop benchmarks for performance and results
• Anticipate how the strategic planning changes will affect your employees, processes, and culture
• Publicize the strategic plan early on and regularly
• Monitor the plan’s progress and make changes when necessary
• Reward the positive behavior of supportive employees and take appropriate action against those who fail to participate productively in the process

 Don’ts:

• Don’t permit a lackadaisical attitude and employees’ resistance to change
• Don’t allow poor follow-through on initiatives

Finally, do not obsess about looking over your shoulder. Consider the teachings of author/consultant Seena Sharp on competitive intelligence, “Competitive Intelligence Advantage: How to Minimize Risk, Avoid Surprises, and Grow Your Business in a Changing World,” (Wiley and Sons).

She recommends not focusing heavily on your competition. Here’s a link to my column: Hottest Tactics to Beat Your Competitors.

From the Coach’s Corner, for an analysis on the lessons from UAL’s six strategic-planning woes, see: Losses Show Why United Airlines Needs Strategic Plan